Australian shares were buoyant today, with the local bourse gaining 45.70 points or 0.60% to 7,674.70.
The top-performing stocks were Healius Ltd and Goodman Group, up 6.09% and 4.01%% respectively.
Over the last five days, the index has gained 1.30% and is currently 2.98% off its 52-week high.
It wasn’t a clean sweep across the sectors. While Utilities (1.35%), Real Estate (1.61%) and Information Technology (1.01%) were well into the green, Consumer Staples and Industrials lagged, down 0.20% and 0.35% respectively.
What’s next for the RBA?
The horizon is not looking as clear as it did for rate cuts or even holds when the RBA meets tomorrow. In fact, there’s a 42% chance of a raise. We can thank the strong dollar for that.
“Last week saw the AUD/USD finish the week above 0.6600 US cents for the first time in two months benefiting from broad-based weakness in the US dollar that followed a less hawkish than expected FOMC meeting and a softer than expected US jobs report,” IG analyst Tony Sycamore said.
“This week's economic calendar in the US is relatively light-on with the main highlights being speeches from several Fed officials and the Michigan Consumer Confidence Index.
“This means that if the AU/USD is to make further gains it will likely come courtesy of Tuesday's RBA Board meeting, previewed below.”
Tomorrow the RBA meets at 2:30pm to make its latest call on interest rates.
“As widely expected, the Reserve Bank of Australia kept its official cash rate on hold at 4.35% at its board meeting in March,” Sycamore said, adding that the RBA had noted that higher interest rates were working to establish a more sustainable balance between demand and supply.
“However, while goods inflation continues to moderate, the RBA reiterated its concerns about sticky services inflation.
“The statement also placed somewhat more emphasis on the data dependency of future decisions and observed the recent pick-up in measured productivity while noting the ‘outlook for household consumption also remains uncertain’.
“We expect the RBA to keep rates on hold this month at 4.35% and to retain its neutral guidance with similar wording from the last board meeting – ‘the board is not ruling anything in or out’.
“In the lead-up to the upcoming May board meeting, firmer than-expected Australian inflation and employment data has resulted in the Australian interest rate market swinging from pricing in RBA rate cuts to pricing in rate hikes.
“Following a news report this morning that former Governor Philip Lowe believes that the fight against inflation ‘isn’t done’ yet, the probability of a 25bp rate rise by August has risen to 42%.
“While we view the bar to another RBA rate hike as very high, we acknowledge the window for rate cuts in 2024 has narrowed and have pushed back our call for a first RBA rate cut from August until November.”
What about the strong dollar?
On the state of the Aussie dollar against the greenback, Sycamore had this to say:
“The AUD/USD starts a new week eyeing a thick resistance layer between 0.6650 and 0.6670.
“The AUD/USD has not traded above this level since mid-January. Should the AUD/USD see a sustained break above 0.6650/70, it would open the way for further gains initially towards 0.6700/20 before the weekly downtrend resistance identified above at .6765.
“On the downside, the AUD/USD has initial support at 0.6595 before the 200-day moving average at 0.6520.
“Below that, a layer of support resides at 0.6480ish from the swing lows of March and April, reinforced by the February 0.6442 low.”
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